Demand Response Programs: An Emerging Resource for Competitive Electricity Markets

1
Demand Response Programs An Emerging Resource
for Competitive Electricity Markets

• Charles Goldman
• CAGoldman_at_lbl.gov
• [phone]
• E. O. Lawrence Berkeley National Laboratory
• WGA CREPC Workshop
• Scottsdale, AZ
• April 18, 2001

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Overview

• Why the Renewed Interest in Demand Management
• Typology of Demand Response Programs
• Key Program Design Features and Pricing

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Why the Renewed Interest in Load Management?

• Network congestion and generation shortfalls
• Price volatility in bulk power markets
• Continuing electric emergencies in California
• FERC rulings encouraging more use of
  price-responsive demand management
• Improved capabilities economics of control
  communications technology
• Emergence of energy-internet entrepreneurs

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Demand Response Program Types

• Traditional C/I Interruptible Tariffs
• Up-front payment typically bill or rate
  discounts for curtailments to Firm Service Level
• Direct Load Control
• Utility control of customer loads (e.g., cycle or
  shed a/c, water heating, pool pump)
• VDRP - Call option
• Customers selects Strike Price. LSE can exercise
  the Call Option and require customer to reduce
  load or face penalties when projected Mkt. Price
  gt Strike Price
• VDRP - Quote option
• Customers specify when and at what price they are
  willing to voluntarily curtail demand
  (pay-per-interruption event)
• Dynamic Pricing (e.g., real-time pricing)

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Key Program Characteristics Design Features

• Target Market
• Mass market vs. Large C/I
• Operational threshold
• Emergency (system condition) vs. Economic
  programs
• Dispatchability
• Utility vs. customer-controlled loads
• Resource Firmness
• Call Option (participation is pre-paid) vs. Quote
  program (participation is fully voluntary)

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Key Program Characteristics Design Features
(cont.)

• Payment scheme
• specified, fixed price vs. variable price, based
  on market conditions
• upfront, reservation payments energy credits
• adjustments for performance
• Exposure to assignment of forecast risk
• day-ahead vs. day-of vs. real-time demand
  prices
• Role of aggregators and/or third parties

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Demand Response Program Some Examples
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Demand Response Program Some Examples
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Financial Incentives CA Interruptible vs. Demand
Response Programs
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California Demand Response Programs Background

• CPUC D.01-04-006 orders
• Changes to Current Interruptible Program
• New Base Interruptible Program (BIP)
• Voluntary Demand Response Program (VDRP)
• Optional Binding Mandatory Curtailment (OBMC)
  Program
• Direct Load Control Programs (Res. A/C Cycling,
  Irrigation pumping)

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Californias Current Non-Firm Interruptible
Rate Program

• 15 Rate discounts for 1500 large customers
  (220M/year) to curtail up to 100-150 hrs/year on
  25-30 occasions
• Available curtailable load at peak during 2000
  PGE (500 MW), SCE (1800 MW), and SDGE (40 MW)
• Actual curtailable load during 2000 PGE (490
  MW), SCE (1213 MW)
• Fairly dependable Reliability resource until
  2000
• But rarely utilized
• 600 MW at SCE failed to interrupt when requested
  and incurred substantial penalties (92M)
• 25, or 124 MW, of PGEs load dropped out in
  2000
• CA would have had rolling blackouts on at least
  5 occasions in 2000 in absence of Non-Firm
  program
• Program demand reductions up to 2190 MW (8/2/2000)

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CPUC Changes to Current Interruptible, Non-Firm
Tariff

• Current Program 15 rate discount to customers
  willing to interrupt service for 80-150 hrs/yr.
  with30 minutes notice substantial penalties for
  failure to comply (4.20 - 8.00/kWh)
• SCE Customers may elect to opt-out or change firm
  service level during 15 day notice window, with
  effective date of 11/1/00 or next billing cycle
• If SCE customers opt out, cant participate in
  any other program that pays a Capacity payment
  (e.g., BIP, CA ISO DRP)
• Extend existing programs through 12/31/02
• Program use limited to one 6 hour event/day 4
  events per calendar week and 40 hrs/month
• Current program open only to Existing Customers
  lift suspension of penalty provisions

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New Base Interruptible Program (BIP)

• Designed primarily as replacement for current
  PGE program which is fully exhausted
• Open year-round
• Key program elements
• one 4-hour event/day
• 10 events per month and 120 hours/yr.
• Incentive 7 per kW-month credit on bill
• 6/kWh penalty for usage above Firm Service Level
• 15 of load, with minimum drop of 100kW per event
• No double dipping - Customer must complete
  obligations to current Utility Interruptible
  program or CA ISO DRP before eligible

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Voluntary Demand Response Program

• Utility solicits bids from customers when ISO
  notifies utility of need for demand relief
• Customer offers kW reduction for specified hours
  Utility either accepts or rejects bids
• Customer paid for performance at 350/MWh with no
  penalties
• Baseline average hourly usage during 10
  immediate, similar days
• New Participants receive interval meter
  communication equipment without CHARGE (if stay
  in program for 1 yr. and respond to 10 events)
• Customer minimum peak demand reduction of 100
  kW
• Customer with 300 kW demand must drop 33 to
  participate
• Customer with 100 kW demand must drop 100

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Optional Binding Mandatory Curtailment (OBMC)
Program

• Exempts participating customers from Stage 3
  rotating outages if customer can reduce Circuit
  load by 15 during System Firm Load Reductions
  (I.e., concurrent with rotating outages)
• Load reductions requested in 5 increments
• Utility will facilitate circuit aggregation
• Program participants pay equipment costs and
  receive No payment
• Penalty for failure to reduce load 6/kWh for
  excess energy
• Baseline
• 5 increments measured against average hourly
  demand during previous 10 similar business or
  weekend days
• 15 total peak reduction measured against prior
  years usage for the same month

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CAISO Demand Response Programs

• Demand Relief Program
• Emergency curtailment program, prior to Stage 3
  during Summer Months from 11 AM to 7 PM
• First Request for Bids (596 MW awarded
  contracts signed)
• Second Request for Bids for Loads without Back-up
  Generation (due 5/1/01 ISO wants 6/1 or
  7/1start)
• Third Request for Bids for Loads WITH Back up
  Generation (issued 4/3/01 WITHDRAWN 4/5/01)
• Discretionary Load Curtailment Program
• RFP issued 4/11/01 ISO prefers responses by
  4/23/01
• Participating Load Program
• Loads can bid in Ancillary Services markets

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CA ISO Operation of Demand Response Programs
Normal Operation
Operating Reserves above 7
Disc. Load Curtailment Program Utility VDRP ??
Stage 1 Emergency
Operating Reserves forecast below 7
Public alert
Voluntary conservation
Stage 2 Emergency
Operating Reserves forecast below 5
Curtail UDC interruptible Loads
Curtail DRP Load Blocks
Curtail DRP Load with BUG
Stage 3 Emergency
Operating Reserves actually below 1.5
Begin firm Load shedding
BUG Back-up Generator
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CA ISO Demand Relief Program

• Emergency curtailment program prior to Stage 3
  for 4 summer months (June - Sept 2001)
• Minimum bid 1 MW need hourly interval meter
• Mandatory curtailment limited to 24 hrs/month
  between 11 AM- 7 PM (4 hour blocks) must respond
  within 35 minutes
• Reservation payment 20,000 per MW-month
• Energy performance payment 500/MWh
• ISO can also issue Additional Optional
  Curtailment request or Contracted Load can offer
  Voluntary Curtailment under certain conditions

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CA ISO Discretionary Load Curtailment Program

• Provides additional resource to Grid for
  management of potential system emergency
  conditions
• Availability 4/23/01- 3/31/02 between 7 AM - 8
  PM
• Curtailed Energy payment 350/MWh
• Minimum demand reduction 1 MW
• Metering Performance Measurement
• Hourly interval meter or appropriate measuring
  devices as required by CAISO-approved Perf. Meas.
  Plan
• Load Aggregator proposes Baseline Load profile
• Use of generation - lt1MW behind each interval
  meter with approval from AQMD not intended for
  Back-up generators